Question

Miller Cereals is a small milling company that makes a single brand of cereal. Recently, a business school intern recommended that the company introduce a second cereal in order to “diversify the product portfolio.” Currently, the company shows an operating profit that is 20 percent of sales. With the single product, other costs were twice the cost of rent. The intern estimated that the incremental profit of the new cereal would only be 3.5 percent of the incremental revenue, but it would still add to total profit. On his last day, the intern told Miller's marketing manager that his analysis was on the company laptop in a spreadsheet with a file name, NewProduct.xlsx. The intern then left for a 12-month walkabout in the outback of Australia and cannot be reached. When the marketing manager opened the file, it was corrupted and could not be opened. She then found an early (incomplete) copy on the company's backup server. The incomplete spreadsheet is shown as follows. The marketing manager then called a cost management accountant in the controller's office and asked for help in reconstructing the analysis.

Answer 1

Answer

Projected Income Statement
	Status Quo	% Increase	Two products	Difference
Sales Revenue	$ 200,000	40%	$       280,000	$   80,000
Costs
Material	$    60,000	17%	$         70,000	$   10,000
Labor	$    60,870	15%	$         70,000	$      9,130
Rent	$      8,043	50%	$         12,065	$      4,022
Depreciation	$    10,000	0%	$         10,000	$            -
Utilities	$      5,000	40%	$           7,000	$      2,000
Other	$    16,087	324%	$         68,135	$   52,048
Total costs	$ 160,000	48%	$       237,200	$   77,200
Operating profit	$    40,000	7%	$         42,800	$      2,800

Rent = [160,000 - (60,000 + 60,870 + 10,000 + 5,000)] /3

Calculations:

E 1 B C Projected Income Statement Status Quo % Increase Two products 200000 0.4 =B3+(B3*C3) 2 Difference =D3-B3 3 Sales Revenue 4 5 Costs 6 Material 60000 =E6/B6 70000 =D6-B6 7 Labor =D7/(1+C7) 0.15 70000 =D7-B7 8 Rent 8043.333333 0.5 =B8+(B8*08) =D8-B8 9 Depreciation 10000 =B9+(B9*09) =D9-B9 10 Utilities 5000 =B10+(B10*С10) =D10-B10 11 Other 16086.666666 =E11/B11 =D12-SUM(D6:D10) =D11-B11 12 Total costs =SUM(B6:B11) =E12/B12 237200 =D12-B12 13 Operating profit =B3-B12 0.07 =D3-D12 =D13-B13 O 0.4

In case of any doubt, please comment.